Burning Soy Dollars for Heat this Christmas
Introduction
I originally published this piece on September 8th, 2022, when the Peso was at ~140:1. I am republishing it to TradingView to celebrate the 170:1 mark, made possible with consistent advances to TradingView's Idea publishing. I believe we will continue to see devaluation of Argentina's currency as a deterioration in commodity prices continues, along with regaining strength in the US Dollar. Please enjoy, and feel free to leave any questions or comments!
Thesis
The Soy-Dollar is another example of Argentina doing it to themselves. The country recently announced an exchange rate of 200 Pesos to 1 US Dollar for ~1 month timeframe, a dramatic benefit over the "open-market" 140:1. Argentina has a majority of it's economy driven on soybean farming, this isn't a niche market-pull. Altogether, the move comes as questions are being raised on the Treasury's ability to pay Dollar debts, threatening further depreciations against a currency that has suffered already. Argentina devaluing it's own currency to a major percentage of it's economy is one strike, doing the move when being questioned on finances is another, but leading it's own crises was the only one needed for a country batting badly in a t-ball league. The last ten years have been a whirl, but their hyperinflation has been so tremendous that I can only sympathize for a population with 37% risk of suffering from a mental illness in their lifetime (as of 2018, and conditions have gotten so very much worse). It feels terrible to call out destructive policies and watch them unfold, but this was a bad move. I cannot imagine arguing against a >140-200 Peso to Dollar rate after offering it to a majority of the economy, even for such a short time. A 30% currency devaluation by the bank isn't just a show of weakness, it's desperation to find a floor for their currency crisis. Showing favouritism to one market is going to kill diversification, something they needed to push for before with China ramping up their domestic soybean production by 40% in 2025. Their major importers are all suffering their own currency crises, few with direct swap lines with the Federal Reserve. Dollars are the blood of international trade, and they are drying up in critical emerging markets.
But Argentina did it to themselves. An interest rate of 3.5% is scaring the largest banks in the world and the US Treasury Secretary, Argentinians haven't had an interest rate under 20% in 5 years, currently sitting at 69.5%, which is under their Inflation rate YoY at 71%. Economies need to be able to experiment and fail in ventures; slap bracelets and fidget spinners are analogous to VR headsets and TACODOGCOIN for the economic participants to create an environment of willful employment-spend cycle. Will to work can be internal and external, sometimes getting the right carrot is better than buying an electric baton. Argentina does not get to experiment in business, so Argentina does not get to evolve. Argentina suffers from critical capital allocation issues - money is easily siphoned off (and rewarded) by different tax havens across the Western hemisphere, US included - but nothing that cannot be overcome so much so that they need to persistently suffocate their own economy.
In a previous Vignette I showed off a model for "Exporting-Importing Inflation", that is if a country is applying global inflationary pressures or absorbing them. Argentina has consistently pushed prices up for it's exports, an economy that should do amazingly well in an era of elevated soybean prices, but doesn't. International pressures aside, Argentina isn't a bastion of risk-free business even with a more competent central bank. Again, recent studies have highlighted the elevated anxiety and depression risks in bad economic climates, and Argentina's first-to-date psychological survey done in 2018 underscored a people suffering. Whatever price pressures Argentina is adding to the system isn't resulting in localized health, indicating a serious bleed - again not surprising given businesses have to contend with >50% interest rates.
Money Supply in Argentinian terms has grown at a logarithmic rate, right in step with the Peso's devaluation. But in "real" *USD* terms, the money supply has decreased. An oddity given external debt has only doubled, while GDP has (until 2018) had positive growth and in USD, superseding external debt (until 2018). And 2018 is really when things seem to have hit the fan for the country - bank strikes, general labor strikes, political uprisings with questionable arrests and charges across parties. Many of my research notes have looked at temporality of crises, in that events are rarely spontaneous. Balance of Trade and FX reserves reveal Argentina walked away from the GFC only to suffer from the Global recession afterwards. The country failed to find footing in the changed environment, had years of economic denigration leading to a lengthy period of recessionary behaviours. I believe Argentina is in an economic depression, likely starting in ~2013. Decreasing money supplies means the central bank has been diluting the value with a net system-loss effect.
The situation is bad, unlikely to improve soon. Argentina is suffering from a confidence issue; external investors are not confident Argentina will be able to pay debts (fair) and question future economic health (also fair), while internal consumers are suffering from hyperinflation tearing away at the value of their currency with a sustained environment against consumer spending. AND IT SHOWS. Consumer spending has dropped in real terms to nothing. That isn't to suggest the economy is dead, but consumers certainly aren't interacting with it on the government's terms - which means to outside investors the sovereign is dead. There are easy fixes and hard fixes. Argentina is suffering from a currency crisis the government deserves but the citizens don't - the Federal Reserve has offered direct credit swaps in the past to Brazil and Mexico (among others), and a line could help Argentina. I am still studying the effect these swaps have on the currency exchange rate, and it does appear to limit devaluation to a variable effect based on the internal economy. Argentina could benefit from the swap line in finding an easy supply to Dollars without hurting itself, but dollar liquidity isn't the cause for them. Hard fixes are fixing the internal business environment, which would require a direct combination of education (taking years to decades for full effect), guidance (national business combining localized banking initiative to address capital allocation), regulation, AND taxation. Offering low interest rates for businesses to experiment is critical in an economy, but the population is far from consumer-primed.
Argentina needs guidance, Government, Central bank, and national businesses alike. Diversification of goods, advanced manufacturing capabilities, internalization of demand, regulation and enforcement protecting domestic startups along with serious pushes in education, social improvement spending, technology and process development gifts. Debt isn't an enemy, but a lack of responsible and salient business plan is. Argentinian leaders need to develop a coherent timeline of events they can reasonably do to support citizens psychologically, socially, and economically to drive localized spending to create a sustainable economy. Working with international businesses to advance manufacturing capacity at responsible wages, and creating critical developmental infrastructure step-wise. Until then, Argentina will suffer as soybean demand declines worldwide against increasing global production and decreased national diversification- a worsening emerging market crisis - and a self-destructive central bank and sovereign government.
I originally published this piece on September 8th, 2022, when the Peso was at ~140:1. I am republishing it to TradingView to celebrate the 170:1 mark, made possible with consistent advances to TradingView's Idea publishing. I believe we will continue to see devaluation of Argentina's currency as a deterioration in commodity prices continues, along with regaining strength in the US Dollar. Please enjoy, and feel free to leave any questions or comments!
Thesis
The Soy-Dollar is another example of Argentina doing it to themselves. The country recently announced an exchange rate of 200 Pesos to 1 US Dollar for ~1 month timeframe, a dramatic benefit over the "open-market" 140:1. Argentina has a majority of it's economy driven on soybean farming, this isn't a niche market-pull. Altogether, the move comes as questions are being raised on the Treasury's ability to pay Dollar debts, threatening further depreciations against a currency that has suffered already. Argentina devaluing it's own currency to a major percentage of it's economy is one strike, doing the move when being questioned on finances is another, but leading it's own crises was the only one needed for a country batting badly in a t-ball league. The last ten years have been a whirl, but their hyperinflation has been so tremendous that I can only sympathize for a population with 37% risk of suffering from a mental illness in their lifetime (as of 2018, and conditions have gotten so very much worse). It feels terrible to call out destructive policies and watch them unfold, but this was a bad move. I cannot imagine arguing against a >140-200 Peso to Dollar rate after offering it to a majority of the economy, even for such a short time. A 30% currency devaluation by the bank isn't just a show of weakness, it's desperation to find a floor for their currency crisis. Showing favouritism to one market is going to kill diversification, something they needed to push for before with China ramping up their domestic soybean production by 40% in 2025. Their major importers are all suffering their own currency crises, few with direct swap lines with the Federal Reserve. Dollars are the blood of international trade, and they are drying up in critical emerging markets.
But Argentina did it to themselves. An interest rate of 3.5% is scaring the largest banks in the world and the US Treasury Secretary, Argentinians haven't had an interest rate under 20% in 5 years, currently sitting at 69.5%, which is under their Inflation rate YoY at 71%. Economies need to be able to experiment and fail in ventures; slap bracelets and fidget spinners are analogous to VR headsets and TACODOGCOIN for the economic participants to create an environment of willful employment-spend cycle. Will to work can be internal and external, sometimes getting the right carrot is better than buying an electric baton. Argentina does not get to experiment in business, so Argentina does not get to evolve. Argentina suffers from critical capital allocation issues - money is easily siphoned off (and rewarded) by different tax havens across the Western hemisphere, US included - but nothing that cannot be overcome so much so that they need to persistently suffocate their own economy.
In a previous Vignette I showed off a model for "Exporting-Importing Inflation", that is if a country is applying global inflationary pressures or absorbing them. Argentina has consistently pushed prices up for it's exports, an economy that should do amazingly well in an era of elevated soybean prices, but doesn't. International pressures aside, Argentina isn't a bastion of risk-free business even with a more competent central bank. Again, recent studies have highlighted the elevated anxiety and depression risks in bad economic climates, and Argentina's first-to-date psychological survey done in 2018 underscored a people suffering. Whatever price pressures Argentina is adding to the system isn't resulting in localized health, indicating a serious bleed - again not surprising given businesses have to contend with >50% interest rates.
